WORLD PROPERTY CHANNEL ®

(NEW YORK, NY) -- A puzzling new Goldman Sachs report credits President Barack Obama's administration with helping to increase the average price of houses by 5 percent in the past few months, then warns that increase may only be temporary.

President Barack Obama

"The risk of renewed home-price declines remains significant," wrote economist Alec Phillips. He added that Goldman Sachs'  "working assumption is a further five percent to 10 percent decline" by the middle of next year.

The former investment bank's report, released to the public late Friday, Oct. 23, says government moratoria and incentives to modify existing loans succeeded in slowing the flood of foreclosures.

That kept supplies of available housing lower than they might have been. In particular, loan mod schemes like the Home Affordable Modification Program eroded the housing supply by tying up outstanding mortgages in months of negotiations and paperwork with servicers, according to DSNews.com.

The redefault rate for successfully modified loans has been high, leading many lenders, servicers and economists to suggest that a "shadow" inventory of soon-to-be-foreclosed homes will hit the market in the next year.

Nevertheless, in the short term those government measures, along with the home tax credit for first-time buyers, demand for housing. Goldman estimated that the tax credit helped markets move 200,000 more homes than would have otherwise been sold, according to DSNews.com.

The final factor in increased housing demand and rising prices, according to the Goldman report, was a government emphasis on "abnormally low mortgage rates."

It cited the Federal Reserve's willingness to buy massive amounts of mortgage securities, driving rates down by about 30 basis points.

That potent combination of factors drove home prices up in most markets in recent months, with bidding wars growing more common for especially desirable REOs, according to DSNews.com.

Yet the future outlook for government aid in housing prices is "cloudy," the  Goldman Sachs report states.

The tax credit for homebuyers - which is set to expire at the end of this month - likely will be extended for awhile "but probably no longer than through the first half of 2010."

And the Fed is already phasing out its purchases of securities, leading to fears that mortgage rates will rise just as buyers lose their key tax incentive.

Sen. Jack Reed (D-RhodeIsland)

The Goldman Sachs report notes some politicians favored added consumer protections that would effectively keep foreclosure rates low, like a proposal by Sen. Jack Reed (D.-Rhode Island) to require borrowers and lenders to enter arbitration before a foreclosure is filed.

That proposal would halt foreclosures to a trickle and keep prices afloat "at a minimum," Goldman said in its report. Nevertheless, the firm added that it thought such measures did little more than forestall disaster.

"The tradeoff would come later, when many of the properties eventually make their way back onto the market through foreclosure," the report predicts. 

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